Russia

Russian Mobile Market Continues to Grow, Despite High Levels of Penetration

Demand for wireless communications services in Russia has grown rapidly over the last ten years. At December 31, 2007, overall wireless telecommunications penetration in Russia stood at 119% (or 173 million subscribers) versus 105% (or 152 million subscribers) at the close of 2006, according to AC&M-Consulting.

Key growth factors include:

• A rapidly growing economy
• Rising disposable incomes and a growing middle class
• Relatively low fixed-line penetration
• Prevalence of multi SIM card usage

In Russia, particularly high levels of telecom penetration are to be found in Moscow and St. Petersburg with more than 176 and 153 subscribers per 100 residents, respectively, at December 31, 2007. According to AC&M-Consulting and the Company’s own data, MTS accounted for 42.2% and 44.9% of subscribers in Moscow, 30.5% and 29.1% of subscribers in St. Petersburg and 33.7% and 33.2% of total Russian subscribers as of December 31, 2006 and 2007, respectively.

Key market figures for 2007 include:

• Average penetration in the regional Russian markets = 109 per 100 residents
• Percentage of MTS subscribers in Moscow = 44.9%
• Percentage of MTS subscribers in St. Petersburg = 29.1%
• Percentage of MTS subscribers in Russia = 33.2%

Competition in a Market of Three

In recent years competition has evolved to exist primarily between MTS and two other major players, each of which provides significant coverage throughout Russia. In addition, MTS competes with local GSM, D-AMPS and CDMA operators in several Russian regions.

Competition in the market is based upon:

• Local tariff prices
• Network coverage and quality
• Brand perception
• Level of customer service provided
• Roaming and international tariffs
• Value-added services

Opportunities Arising through Increased Convergence

In early 2007, MTS became one of three companies that received a federal license to provide 3G services throughout the Russian Federation following a tender from the Russian Ministry of Information.

This development allows MTS to expand the capacity of its network introducing exciting new products and services to customers including:

• Video calls and video conferencing
• Mobile television
• Greater network capacity

The new 3G network in Russia will complement MTS’ existing GSM network, and the Company announced the commercial launch of its 3G network in St. Petersburg and technical readiness for launch in Sochi, Yekaterinburg and Kazan in May 2008.

Favorable Conditions for 3G in Russia & CIS

The development of 3G networks across Russia and the CIS presents MTS with strong opportunities to broaden its offering to subscribers, as well as promote efficiencies within the Group. The associated costs of setting up, launching and marketing 3G services in Russia and the wider region are expected to remain favorable in comparison to other non-Russian operators’ 3G services for a number of reasons, including:

• Higher 3G-compatible handset penetration
• Falling prices of mobile devices
• Favorable rates from 3G network equipment suppliers
• Low cost of licenses
• Technological improvements in speed and quality of 3G networks